Did your local representative vote against the HIRE Act last month? During a period of entrenched unemployment, how could anyone be against more jobs and more hiring? In an era of hyper-partisanship, it was passed by a near unanimous consent (78-12 qualifies in 2010 as near unanimous). After implementing the guidelines personally, it is hard to believe that the measure passed for any reason beyond its’ positive sounding name.
The HIRE Act provides a Social Security employer payroll tax holiday for this year (6.2% of the employee’s gross wages) to any employer who hires a qualified individual. An individual is “qualified” for the credit if he/she has not worked more than 40 hours for any employer over the past 60 days, and he/she is not related to the hiring business’ owners (to prevent fraud). If the qualified individual is still in the hiring companies’ employ after 52 weeks, the business receives an additional $1,000 tax credit.
The newly hired employee signs an affidavit (Form W-11, brand new from the IRS!) to certify that they meet the Act’s conditions. The employer can then start taking the tax credit against their payroll tax liability immediately. A simple reward and incentive for businesses that put hard working Americans to work.
If only.
Here are my problems with the Act:
1. Rewards business to hire people into existing job openings, not to create new jobs. If someone quits a job, that business has an open position. That business fills the job opening. Explain to me why the business deserves a tax credit for that activity. Is the theory that the job would not have been filled if the credit had not been in place to encourage this hiring? I doubt that is part of the business owner’s decision process.
In order for the Act to spur hiring that would not have occurred otherwise, the business would need to place classified ads that read something like this:
WANTED: Qualified, unemployed workers. Candidates who have been out of work for less than 60 days need not apply. Must be detailed oriented, have strong computer skills and be willing to sign IRS Form W-11 upon hire.
Seriously, a business owner, one who plans to remain in business, will hire the best individual for the job, not the one who has been unemployed the longest.
2. There is no mechanism for an employer to verify the validity of the signed employee affidavit. New employees sign a variety of forms on their first day. Now companies will include IRS Form W-11. What happens when the employee signs it without completely reading it (that never happens!)? What happens when new employee signs the affidavit, but in reality, they have only been out of work for 55 days? The employer has no way to verify if the affidavit is correct. If the affidavit is incorrect, will the business be penalized for underpaying their taxes? As an employer, we are taking the signed affidavit on faith, since the employee has signed it under penalty of perjury. I believe that many companies will use this signed form, take the tax credit, and either later be held to account for false forms, or receive a credit when one was not deserved.
3. The Act demonstrates a government with little idea on how business decisions are made. You can’t decide to hire more people on the assumption that you might receive a credit…because you might not. Should we be surprised that the bill had bipartisan support? Should we be worried? The Act seems to have only one redeeming quality: everyone who voted for it can claim to be “pro-job creation”.
The HIRE Act should help create jobs that would not have existed without the Act. Instead, it created 535 pats on the back, but not much else.
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